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FAIR VALUE MEASUREMENT

12 Months Ended

Dec. 31, 2019

FAIR VALUE MEASUREMENT

FAIR VALUE MEASUREMENT

9. FAIR VALUE MEASUREMENT

The Company measures at fair value its financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) on the measurement date in an orderly transaction between market participants.

As of December 31, 2018 and 2019, the Company’s financial assets and liabilities were measured at fair value on a recurring basis in periods subsequent to their initial recognition all using the significant other observable inputs, which are Level 2 inputs.

9. FAIR VALUE MEASUREMENT (Continued)

Foreign exchange option and forward contracts

The Company entered into certain foreign currency derivative contracts to protect against volatility of future cash flows caused by the changes in foreign exchange rates. The foreign currency derivative contracts do not qualify for hedge accounting and, as a result, the changes in fair value of the foreign currency derivative contracts are recognized in the consolidated statements of operations.

The Company’s foreign currency derivative instruments relate to foreign exchange options or forward contracts involving major currencies such as Renminbi, Canadian dollars, British pounds, and Japanese yen. Since its derivative instruments are not traded on an exchange, the Company values them using valuation models. Interest rate yield curves and foreign exchange rates are the significant inputs into these valuation models. These inputs are observable in active markets over the terms of the instruments the Company holds, and accordingly, the fair value measurements are classified as Level 2 in the hierarchy. The Company considers the effect of its own credit standing and that of its counterparties in valuations of its derivative financial instruments.

Interest rate swap

During the year ended December 31, 2016, the Company entered into fixed for floating interest rate swaps with two financial institutions to hedge the interest rate risk on its project debts obtained in the United Kingdom with notional amount totaling GBP78.4 million ($96.8 million), which will expire between 2033 and 2034. The interest rate swaps had been designated as cash flow hedges for accounting purposes.

In 2018, the UK projects were sold and the interest rate swaps were assumed by the third party buyer.

The interest rate swap contracts of total notional amounts of approximately $399.0 million were entered into for Recurrent projects and designated as cash flow hedges. The interest rate swap contracts were transferred along with the sale of the underlying projects, and the fair value of the remaining swap contract representing a notional amount of approximately $47.4 million entered into for Roserock project loan was recorded as derivative liabilities of $2,170 on the balance sheet as of December 31, 2019.

The estimated fair value of interest rate swaps was measured based on observable market data, which are considered Level 2 inputs.

9. FAIR VALUE MEASUREMENT (Continued)

The fair value of derivative instruments on the consolidated balance sheets as of December 31, 2018 and 2019 and the effect of derivative instruments on the consolidated statements of operations for the years ended December 31, 2017, 2018 and 2019 are as follows:


		Fair Value of Derivative Assets
		At December 31, 2018				At December 31, 2019
		Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
				$				$
Foreign exchange forward contracts		Derivative assets — current		4,166		Derivative assets — current		5,097
Foreign exchange option contracts		Derivative assets — current		1		Derivative assets — current		450
Interest rate swap		Derivative assets — current		594		Derivative assets — current		—
Interest rate swap		Derivative assets — non-current		3,216		Derivative assets — non-current		—
		Total		7,977		Total		5,547


		Fair Value of Derivative Liabilities
		At December 31, 2018				At December 31, 2019
		Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
				$				$
Foreign exchange forward contracts		Derivative liabilities — current		13,480		Derivative liabilities — current		10,127
Foreign exchange option contracts		Derivative liabilities — current		218		Derivative liabilities — current		25
Interest rate swap		Derivative liabilities — current		—		Derivative liabilities — current		329
Interest rate swap		Derivative liabilities — non-current		—		Derivative liabilities — non-current		1,841
		Total		13,698		Total		12,322


				Amount of Gain (Loss)
				Recognized in Statements
		Location of		of Operations
		Gain (Loss) Recognized		Years Ended December 31
		in Statements of Operations		2017		2018		2019
				$		$		$
Foreign exchange forward contracts		Gain (loss) on change in fair value of derivatives		(2,638)		(16,414)		(20,249)
Foreign exchange option contracts		Gain (loss) on change in fair value of derivatives		—		(2,023)		(1,022)
Warrants		Gain (loss) on change in fair value of derivatives		711		—		—
Interest rate swap		Gain (loss) on change in fair value of derivatives		1,655		(793)		(947)
		Total		(272)		(19,230)		(22,218)

Other fair value measurements

The Company measures certain long-lived assets or long-term investments at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair value of such assets is below its recorded cost and impairment is required.

The Company recorded impairment charges for certain manufacturing asset group of $11,626, $30,968 and $21,866 for the years ended December 31, 2017, 2018 and 2019, respectively. The fair value of these assets was measured based on prices offered by unrelated third-party willing buyers and classified as level 3 fair value measurements as the offering prices are not observable. The impairment was recorded in general and administrative expenses of the MSS segment.

9. FAIR VALUE MEASUREMENT (Continued)

The Company also holds financial instruments that are not recorded at fair value in the consolidated balance sheets, but whose fair value is required to be disclosed under the U.S. GAAP.

The carrying values of cash and cash equivalents, restricted cash, trade receivables, billed and unbilled, amounts due from related parties, accounts payables, short-term notes payable, amounts due to related parties and short-term borrowings approximate their fair values due to the short-term maturity of these instruments. Long-term borrowings were $393,614 and $619,477 as of December 31, 2018 and 2019, respectively, which approximate their fair values since most of the borrowings contain variable interest rates. The fair value of long-term borrowings was measured based on discounted cash flow approach, which is classified as level 2 as the key inputs can be corroborated with market data.

The carrying value of the Company’s outstanding convertible notes was $127.4 million and nil as of December 31, 2018 and 2019, respectively, which approximates the fair value.

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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